Banks sector register improved performance

Banks in Tanzania posted impressive results in the first quarter of this year, painting a positive trend in the monetary sector since the 2008 global financial crisis that greatly affected their performance.

The sector since the crisis had to deal with a non-debt-payment problem as clients were affected by the crisis and hence failed to honour their obligation. Many banks saw the increase of non-performing loan portfolio that reduced their profitability level and some made losses.

To cushion the sector from the worst effects of the crisis, the government provided a 1.7tr/- stimulus package, mostly to banks that loaned out traditional crop producers and agents.

The sector also seems to be through a difficulty period experienced last year after most of them posted good profit in this year’s first quarter. The banks ran into a rough and tough period last year when the costs of funds jumped to between 17 and 20 per cent, amid high - double digit - inflation rate.

Dhow Financial Chief Executive Officer, Prof Mohamed Warsame, said the situation had improved significantly in the first three months of this year.

“I think this is going to be a good year for the banks, as last year was real difficult for them…overall the banks are back on the track as costs have subdued considerably,” Prof Warsame said.

He said in 2012 about 30 per cent of banks either made losses or their profits slowed down as they had to squeeze their activities dearly to avoid passing costs to lenders. 

The banks, according to him, have narrowed down the gap between deposits and lending rates considerably, but this is not the main source of fund for loans products.

“Most banks depend on fixed deposits to rise their lending funds… however, this is costly as investors are demanding between 17 to 18 per cent while banks are charging the same for lending. 

“This squeeze saw most banks last year to post bad results, but things have changed to the better after inflation and other costs started going down,” Prof Warsame said.

The Stanbic Bank Regional Head-Macroeconomic Research, Mr Phumelele Mbiyo, said in 2011 inflation rate exceeded lending rates, meaning banks were providing loans at a loss.

“(But) the recently fall of inflation rate that have reached 9.4 per cent will lead to the decline of lending rates,” Mr Mbiyo, said at a recent economic forum in Dar es Salaam.

He said he anticipated lower interest rates were forthcoming as inflation rate continue to decline hence lowering the costs of lending. 

According to the Chief Executive Officer of Zan Securities, Raphael Masumbuko, the good results for the banks in the first quarter were due to the saving culture that has gone up leading increased ability of banks to loan out more.
Source: The Daily News, reported by Abduel Elinaza in Dar es Salaam
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